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The Clean Development Mechanism: In depth

Topic 5, Section E . The Clean Development Mechanism: In depth. Learning outcomes. In this presentation you will learn, in detail, about the Clean Development Mechanism (CDM), the project development cycle, and forestry projects within the CDM. Topic 5, Section E, slide 2 of 51. Outline.

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The Clean Development Mechanism: In depth

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  1. Topic 5, Section E The Clean Development Mechanism: In depth

  2. Learning outcomes In this presentation you will learn, in detail, about the Clean Development Mechanism (CDM), the project development cycle, and forestry projects within the CDM. Topic 5, Section E, slide 2 of 51

  3. Outline • CDM basics • CDM project development cycle • Forestry projects in CDM Topic 5, Section E, slide 3 of 51

  4. 1. CDM Basics Article 12 of the Kyoto Protocol under the United Nations Framework Convention on Climate Change (UNFCCC): • The purpose of the CDM shall be to assist non-Annex I Parties in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Annex I Parties in achieving compliance with their commitments • It is the host Party’s prerogative to confirm whether a CDM project activity assists it in achieving sustainable development • A CDM project activity isadditional if greenhouse gas emissions are reduced below those that would have occurred in the absence of the registered CDM project activity Topic 5, Section E, slide 4 of 51

  5. Rules for the CDM • Annex I Parties are to refrain from using CERs generated from nuclear facilities to meet their quantified GHG emissions reduction targets • The eligibility of land use, land-use change and forestry project activities under the CDM is limited to afforestation and reforestation • Public funding for CDM projects from Annex I Parties is not to result in the diversion of official development assistance (ODA) and is to be separate from and not counted towards the financial obligations of Annex I Parties Topic 5, Section E, slide 5 of 51

  6. Division of parties: Annex I and Annex II Annex I Annex II Australia / Austria / Belgium / Canada / Denmark / EC / Finland / France / Germany / Greece / Iceland / Ireland / Italy / Japan / Luxembourg / Netherlands / New Zealand / Norway / Portugal / Spain / Sweden / Switzerland / Turkey / United Kingdom / USA Belarus / Bulgaria / Croatia / Czech Republic / Estonia / Hungary / Latvia / Liechtenstein / Lithuania / Monaco / Poland / Romania / Russian Federation / Slovakia / Slovenia / Ukraine Non-Annex I countries = the rest of the ratifying countries Topic 5, Section E, slide 6 of 51

  7. Selected quantified emission limitation or reduction commitment (%) Industrialised countries • Australia 108 • Canada 94 • EC bubble 92 • (Germany 75) • (Portugal 140) • Japan 94 • Norway 101 • New Zealand 100 • USA (not a KP party) Economies in transition • Bulgaria 92 • Baltics 92 • Croatia 95 • Czech Republic 92 • Hungary 94 • Poland 94 • Romania 92 • Russia 100 • Ukraine 100 Topic 5, Section E, slide 7of 51

  8. Kyoto Protocol: Flexibility mechanisms(Source: Yap. 2004) Annex I GHG Emissions Clean Development Mechanism Emission trading 1990 level Joint implementation - 5% Domestic actions Assigned amounts Present day 2012 (BaU) 2012 with KP Topic 5, Section E, slide 8 of 51

  9. The CDM market Source: UNEP/EcoSecurities 2007 Topic 5, Section E, slide 9 of 51

  10. CDM projects by sector CERs issued by sector UNEP/EcoSecurities, 2007 Topic 5, Section E, slide 10 of 51

  11. The CDM project development cycle at a glance Topic 5, Section E, slide 11 of 51

  12. The CDM project development cycle at a glance Topic 5, Section E, slide 12 of 51

  13. 1. Planning a CDM activity • Identify a project activity and examine whether or not it is eligible for the CDM • Collect information on the requirements of the designated national authorities (DNAs) • Obtain list of sustainable development criteria • Obtain list of the CDM priority project types, if any • Begin searching for potential buyers for CERs • Produce a summary of the project description, known either as project idea note (PIN) or project concept note (PCN) Topic 5, Section E, slide 13 of 51

  14. 2. Preparing the project design document (PDD) Topic 5, Section E, slide 14 of 51

  15. General contents of the project design document • An overview of the project activity • A baseline methodology • The duration of the project activity/crediting period • Justification for additionality • Monitoring methodology and plan • Calculation of greenhouse gas emissions by sources • Environmental impacts • Stakeholder comments Topic 5, Section E, slide 15 of 51

  16. Establishing a baseline scenario for forestry projects Topic 5, Section E, slide 16 of 51

  17. 3. Getting approval from each Party involved • Proponents need to obtain written approval from the DNA of the participating country in order to have their project registered under with the CDM executive board • ‘Participating countries’ means both Annex I and non-Annex I countries • The approval letter should contain confirmation that • the country has ratified the Kyoto Protocol. • the proposed project activity is a result of voluntary participation • the proposed project activity contributes to sustainable development (for the hosting country only) Topic 5, Section E, slide 17 of 51

  18. 4. Validation 5. Registration (1/2) • Validation refers to the independent evaluation of the PDD against the UNFCCC’s requirements • The CDM Executive Board authorises third-party agencies, known as designated operational entities (DOEs) to validate PDDs Topic 5, Section E, slide 18 of 51

  19. 4. Validation 5. Registration (2/2) • Validation includes checking to ensure that • the requirements of participation are satisfied • stakeholder comments have been invited, summarised, and taken into account • an environmental impact analysis or assessment has been conducted according to the requirements of the host country • the greenhouse gas emissions reduction is additional • approved baseline and monitoring methodologies have been used or a new methodology has been submitted • the proposed project activity is in accordance with all other requirements and decisions by the COP/MOP and the CDM Executive Board Topic 5, Section E, slide 19 of 51

  20. Registration fees for CDM projects Topic 5, Section E, slide 20 of 51

  21. 6. Monitoring CDM project activities • Project proponents are required to monitor the actual emissions reductions or sequestration that take place when implementing the project • Monitoring includes ‘collection and archiving of all relevant data necessary for determining the baseline, measuring anthropogenic emissions by sources of greenhouse gases within the project boundary of a CDM project activity and leakage, as applicable’ • The monitoring plan needs to be approved by the CDM Executive Board prior to registration • Just like baseline methodologies, there are approved monitoring methodologies Topic 5, Section E, slide 21 of 51

  22. 7. Verification and certification During the verification process, the designated operational entity • checks to ensure the monitoring report satisfies the requirements of the registered PDD • checks whether monitoring methodologies have been correctly applied • has an on-site inspection conducted or requests additional information from the project proponent, if necessary • makes recommendations to the project proponents for revisions related to the monitoring methodology for the future crediting period • determines the actual greenhouse gas emission reductions by the CDM project activity Topic 5, Section E, slide 22 of 51

  23. 8. Issuance of CERs • The executive board issues a certified emission reductions (CER) equal to the verified amount of greenhouse gas emission reductions. There is a formal procedure for issuing CERs. CERs are issued only when the share of proceeds to cover administrative expenses of the CDM has been received. • Two per cent of CERs that are issued will be deducted for the share of proceeds to assist developing parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation. Topic 5, Section E, slide 23 of 51

  24. 3. CDM forestry projects Topic 5, Section E, slide 24 of 51

  25. Marrakech Accord • CDM forestry is limited to: • Afforestation – land unforested 50 years ago • Reforestation – land unforested before 1990 • First commitment period is 2008-2012 when Annex 1 parties must meet their reduction obligation • Allowed at a maximum level of 1% from the assigned amount, or cap: 140 megatonnes of CO2 Topic 5, Section E, slide 25 of 51

  26. Afforestation • Afforestation is different from reforestation. It is the process of establishing a forest on land that is not a forest, or has not been a forest for a long time by planting trees or their seeds • The Marrakesh Accord requires that to qualify as an afforestation project, the land to be planted has not been forested for at least 50 years 50 years Topic 5, Section E, slide 26 of 51

  27. 1990 Reforestation • Direct human-induced conversion of land that has not been forested for a period of at least 50 years to forested land through planting, seeding and/or the human-induced promotion of natural seed sources Topic 5, Section E, slide 27 of 51

  28. 0 10 Canopy Cover 30 100 Defining a forest (1/3) • Host country must define a forest within the following guidelines: • minimum tree crown cover between 10 and 30% • minimum tree height between 2 and 5 metres • minimum land area between 0.05 and 1.0 hectare • Once chosen, values must remain fixed Topic 5, Section E, slide 28 of 51

  29. Defining a forest (2/3) • If a country defines a forest as having trees with 10% or more crown cover and 2 metres high or greater: • Eligible: • simple agroforest system, such as one based on coffee • Non-eligible: • enrichment planting of degraded humid forests that will likely have a crown cover greater than 10% • This will reduce available ‘Kyoto lands’ Topic 5, Section E, slide 29 of 51

  30. Defining a forest (3/3) • If a country defines a forest as having trees with crown cover of 30% or more and a height of 5 metres or greater: • Eligible: • enrichment planting of highly degraded forest • agroforests, such as multi-purpose species with added complexity, rubber-based agroforests • reforestation that uses trees that can grow and meet the forest definition • Non-eligible: • simple agroforest system that cannot grow and meet the forest definition • for example, to meet 30% crown cover would need about 75 trees to be planted in 0.5 hectares Topic 5, Section E, slide 30 of 51

  31. How long can a CDM project last?(creditingperiod) • Two options: • fixed – 30 years with no renewal • renewable – may be a maximum of 20 years and may be renewed twice for a total maximum of 60 years • Need to determine if baseline is same or will be updated Topic 5, Section E, slide 31 of 51

  32. Non-permanence • Land-based systems subject to reversal by human and natural disturbances • Addressed by concept of ‘rental’ of the service • Includes two options – temporary and long-term certified emission reductions (tCER and lCER) Topic 5, Section E, slide 32 of 51

  33. Forest carbon is a ‘rental’ service • tCER expiring at the end of the commitment period following the one in which it was issued • in practice it lasts for 5 years at most • lCER expiring at the end of the crediting period following the one for which it was issued • in practice it can last for 20-30 years and is used in one commitment period in which it was issued • Annex 1 countries using the tCER or lCER must replace or retire them before they expire Topic 5, Section E, slide 33 of 51

  34. Additionality AB = Baseline AC = Additionality AD = Leakage C • Fixed: 30 years with no renewal • Renewable: may be a maximum of 20 years and may be renewed twice for a total maximum of 60 years c Carbon stocks d abcd = gain abef = loss abcd-abef = net gain B b a A D f e t1 t2 Time Topic 5, Section E, slide 34 of 51

  35. Annex 1 demand Without forest-C Price (per tonne of carbon) With forest-C Lowered price Quantity (million tonnes) Effect of forest carbon credits on price Topic 5, Section E, slide 35 of 51

  36. Transaction costs for forestry projects • Project preparation usually by a consultancy company: US$60,000 to US$180,000 • Validationby a Designated Operational Entity: Estimated at US$15,000 to US$25,000 • Registration fee by the Executive Board: For the first 15,000 CERs, projects are charged US$0.10/CER. For anything above 15,000 they are charged US$0.20/CER • Monitoring costs: Depends on project size and sample size needed, as well as on monitoring methods and intensity • On-going verification by the Designated Operational Entity: US$15 to US$25,000 per audit • Issuance fee by the Executive Board: The issuance fee is as above US$0.10/CER for the first 15,000 CERs, and US$0.20/CER for anything above 15,000 CERs • Adaptation levy by the Executive Board: 2% of the CERs generated • Taxes by the host country: Some countries claim a share of a project’s CERs in exchange for issuing a Letter of Approval that is prerequisite to registration Topic 5, Section E, slide 36 of 51

  37. Annual project cost (2001-2025) • Total= US$ 3.4 M 50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 US$ 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Year Example: 5,000 hectares in the Philippines (1/3) Topic 5, Section E, slide 37 of 51

  38. Total cost of each project component, in US$ • Total cost= US$ 3.4 M Reforestation Agroforestry Short rotation 242,988 423,170 2,616,081 Example: 5,000 hectares in the Philippines (2/3) Topic 5, Section E, slide 38 of 51

  39. Example: 5,000 hectares in the Philippines (3/3) Estimated Income from Carbon Credits at US$ 15/tC 12,000,000 1CP 2CP 10,000,000 3CP 4CP 8,000,000 US$ 6,000,000 4,000,000 2,000,000 0 HS HS AF HS Total MS MS AF MS Total LS REFO LS AF LS Total REFO REFO Cost Can be made profitable by Including harvest from products like wood and fruits! Topic 5, Section E, slide 39 of 51

  40. Tropical forests and the carbon market • There are still very few takers of forestry carbon projects under the so-called Kyoto market • It has been estimate that up to 13.6 million carbon credits may be available by 2012 based on projects in the pipeline Topic 5, Section E, slide 40 of 51

  41. CDM projects by scope as of 31 March 2009 0.16% from A/R Topic 5, Section E, slide 41 of 51

  42. World Bank carbon funds • Prototype Carbon Fund (PCF) • all sectors • with loan component • Community Development Carbon Fund (CDCF) • for small-scale projects • sector: energy, urban, waste, agroforestry • prioritises the LDC • contract price US$26 to US$28 per tonne of carbon • BioCarbon Fund (BCF) • Land Use, Land-Use Change and Forestry (LULUCF) sector • to improve people livelihoods • to avoid erosion and desertification • contract price US$12 to US$16 per tonne of carbon Topic 5, Section E, slide 42 of 51

  43. Sustainable development objectives • Enhanced environmental services • improved soil fertility • biodiversity conservation • maintained hydrological/watershed functions • Improved livelihoods • create job opportunities • increased income and financial benefits • Secured social capital • ascertained land titles and tenure systems • reduced conflicts over property • strengthened institution Topic 5, Section E, slide 43 of 51

  44. Barriers to CDM projects A lack of financing for tree planting High transaction cost: more than US$200,000 Carbon credits not sufficient to cover total cost of project Topic 5, Section E, slide 44 of 51

  45. Strategies for overcoming barriers • For host countries, finding a partner from an Annex 1 party or financing institutions • Making carbon credits a supplemental source of income Topic 5, Section E, slide 45 of 51

  46. Programmatic CDM • Programmes of Activities (PoAs) increase the efficiency of the CDM • To complement traditional stand-alone CDM • PoA is a programme coordinated by a private or public entity  • No approved forestry programmatic CDM • But has good potential for forestry projects Topic 5, Section E, slide 46 of 51

  47. First CDM project:Facilitating Reforestation for Guangxi Watershed Management in Pearl River Basin, China • The project activity aims to reduce threats to local forests and generate income for poor farmers by enabling the carbon sequestered by plantations to act like a ‘virtual’ cash crop for project participants • The overall objective is to explore and demonstrate the technical and methodological approaches related to credible carbon sequestration. The project will also enhance the livelihoods of people and native biodiversity Topic 5, Section E, slide 47 of 51

  48. Specific objectives • To sequester CO2 through forest restoration in small watershed areas and to test and pilot how reforestation activities generate high-quality emission reductions in greenhouse gases that can be measured, monitored and certified • To enhance biodiversity conservation by increasing the connectivity of forests adjacent to nature reserves • To improve soil and water erosion control • To generate income for local communities Topic 5, Section E, slide 48 of 51

  49. Project activities • Establishing 2,000 hectares of multiple-use forests in Huanjiang County, Guangxi • Establishing 2,000 hectares of multiple-use forests on sites with severe soil and water erosion in Cangwu County, Guangxi • Establishing legal structures to aid the sale of Certified Emission Reductions (CERs) • Monitoring and assessing the project’s environmental and social-economic impacts • Developing and testing local financing mechanisms • Developing, testing and disseminating the best practice in watershed management Topic 5, Section E, slide 49 of 51

  50. Estimated carbon benefits Topic 5, Section E, slide 50 of 51

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